Marriage Tax Penalty Doesn’t Hit All Couples in 2012

I’m getting married next summer. As an accountant and someone who actively follows my personal finances, this means that I had to look up how saying ‘I do’ will impact my financial situation. Most specifically, how becoming married will affect my taxes paid.

First, in case you’re interested, here are the current applicable tax brackets (for me it’s individual (before marriage), or married filing jointly.

Tax Brackets 2012 Single Tax Brackets 2012 Married

Now, we’ve all heard a lot about the “marriage penalty”. However, as part of the Tax Relief Act of 2010, Congress extended the marriage tax relief provisions that were originally enacted as part of the Economic Growth and Tax Relief Reconciliation Act. These provisions were extended through 2012. Essentially, Congress was able to get rid of the “marriage penalty” by doing the following:

  • Extending the 15% income tax bracket for married couples to to cover higher income levels
  • Increased the standard deduction for married couples to be double that of single filers
  • Adjusted the Earned Income Tax Credit

Congress has currently extended these adjustments through 2012. As of now, they’re set to expire and the “marriage penalty” will return in 2013. If you’ve been paying attention to politics over the last few years, tax reform is one of the hot topics. If the tax system is restructured in a major way we can expect to see the marriage penalty done away with.

As someone who is getting married soon, I am interested in seeing the tax benefit that someone would receive by getting married versus staying single, under the current tax rates. For this calculation, I used my approximate 2012 income, and my fiance’s expected 2012 income. Here are the incomes I used. On the left is our 2012 income, and on the right is our expected income for next year (using 2012 rates).

My 2012 Income

Wife 2012 Income

2012 Incomes Combined

So those are the income figured I used to calculate the following approximate tax rates…

2012 Taxes Owed

As you can see in the column on the right, there’s currently not a marriage penalty. In the past, the marriage penalty hit what are often called DINKs (Dual Income, No Kids). It hurt most when each person was making the same amount. Even when calculating each at $70k income, there is currently no marriage penalty. However, beyond that, there still remains a marriage penalty. Remember above when I said that Congress had extended the 15% bracket? Well, because of this, as long as each person was going to be at the 25% bracket or under individually, and they remain in the 25% bracket or below when married, then there is not going to be a marriage penalty. However, married couples making a combined $142k+ are still penalized.

So if your incomes are approximately equal and you each make $70k or less, you’re going not going to be penalized. However, if you make a combined $142k or less, but one person in the couple makes significantly more than the other, then there will be a tax benefit. As you can see above, if one person makes $70k and the other $20k gross, there is an approximate $2.5k tax savings.

I’m glad to see the marriage penalty finally get addressed in some fashion, even if it’s temporary. It puts it even more in the spotlight, and hints toward eventual reform. I think the expiration of these provisions next year will put it even more in the spotlight because it will increase the tax burden for 30 million married couples by over $700 (estimated from Joint Committee on Taxation). I look forward to seeing what happens over the next year, and if we don’t see any significant overhaul to the tax system, I’d at least like to see these provisions extended. Even as an accountant, I believe that the current tax system is way too complicated. But that’s a discussion for another time.

While I am an accountant, I am not YOUR accountant. This post should not be construed as tax advice. Tax decisions are fact-dependent. Thus, you should seek the advice of your own CPA.

Removing Cash Account on Mint.com

If you’re an avid Mint.com user then you probably noticed the recent addition of the Cash Account. If you haven’t noticed, then you’re not tracking your finances very closely! Either way…the new account was created to accumulate all of your cash withdrawals. If you’ve been correctly recording all cash transactions then this account is very useful. The balance in this account is the cash that you’ve withdrawn from an ATM but haven’t accounted for in Mint.

However, this feature was rolled out with no warning, and it’s a feature that many users do not want. For example, I treat ATM cash withdrawals as petty cash and I don’t typically record what I spend it on. I know I use the money for food, entertainment, etc. The amount is typically small so I don’t waste the time to record the details. I prefer to just track my electronic transactions and then assume the petty cash is used for those expenses I listed above. But because I don’t record these cash transactions, when Mint implemented this new account I ended up with a new cash asset on my balance sheet, which was throwing off my net worth. It’s clear I don’t have this $2k sitting under a mattress, yet Mint was including this cash account in my Net Worth.

Unfortunately, this is probably a feature that’s all-or-nothing. While there has been no official comment from Mint on the new account, I doubt it’s something that will be able to either be enabled or disabled. Because it seems so integrated into the system as a whole, Mint will either need to remove the cash account from everyone, or ignore the pleas of its customers.

Until this issue is resolved, I’ve decided to work-around the feature by inputting a cash transactions to offset this balance. Because most people didn’t start their Mint account in 2007, it’s actually fairly easy to do this without messing up records in current years. What I did was enter an expense transaction into the cash account on 12/31/2007 that was for the exact amount of my current cash balance. You can see my entry below.

Getting Rid of Mint Cash Account

This entry zeroes-out my cash balance so that it shows as $0 on my balance sheet. Each time I withdraw money from the bank I’ll need to go back and adjust that entry to incorporate the newly withdrawn money. I’ll probably just do this at the end of each month. While I absolutely hate using workarounds for products (I like things to “just work”), this is the best I’ve got for now.

Saving a Water Damaged Cell Phone

Yesterday I accidentally washed my Samsung Galaxy Nexus in the washing machine. The phone is about 7 months old, and the mistake made me sick to my stomach…literally. Three days later, my phone is finally back to 100% working order! Any time your cell phone faces potential water damage, it’s important to follow the right steps to revive it. There are a few mistakes that can cost you big time and will result in you needing to purchase a new phone.

Whether your phone briefly touched water (fell in the toilet, got splashed with water, etc.) or was exposed to water for a longer period of time (washing machine), the first thing you need to do is remove the battery. Do not attempt to turn the phone on to see if it works. You must disconnect the phone from its power source (battery) as soon as possible. Many phones are built in a manner that will allow the circuits to survive water immersion when powered off, but if the phone was on it becomes more complex.

After removing the battery, you should remove the SIM card. For some carriers, the SIM card stores valuable information that would be devastating to lose. You should then remove any cases, covers, and accessories from the phone. Next, I put the phone in a container filled with rice for 24 hours to soak up any water. Then I opened up my phone using images from iFixit as a guide. Once it was opened up, I used a hairdryer to dry the innards of my phone. I put the phone back together after dying for about 10 minutes but it still wasn’t fully working when I turned it on. So I opened it again, and used the hair dryer in every conceivable crevice of the phone. Finally, after putting it back together, it finally works again!

By being patient and thoroughly drying out your phone before powering it on you can save yourself from needing to shell out a few hundred dollars for a new phone. I probably could have skipped the rice step and gone straight for the hair dryer. Either way, I’m glad I did what I did because it saved my phone.